Large businesses have an important role to play in furthering many of the UN’s Sustainable Development Goals (SDGs).  One that has attracted significant attention in recent years – especially for companies with long and multi-layered supply chains – is Goal 8.7:  the eradication of forced labour, modern slavery and human trafficking.  Any responsible business will want to play its part in achieving this laudable aim, and policy-makers have been finding ways to nudge them.

In the UK, the Modern Slavery Act was launched with significant fanfare in 2015.  Among other things, it required commercial organisations with turnover of £36 million or more and a UK connection to publish an annual modern slavery statement. 

However, like the Californian law on which it was modelled, there are concerns that the Act has not yet had the desired impact.  The UK government itself says that around 40% of companies in scope have not complied with the requirement to publish a statement and that some of the statements that have been published are “poor in quality or fail to even meet the basic legal requirements”.  An independent report published earlier this year recommended that, instead of requiring companies to simply disclose what – if anything – they have done to investigate and, where appropriate, address modern slavery in their supply chain, the law should actively require companies to take steps.  The report argued that reporting requirements should be bolstered, compliance should be more actively monitored, and sanctions should be strengthened.  Although the government did not accept all of these recommendations, it has consulted on some important proposed changes. 

A number of the government’s proposals will be widely welcomed.  For example, it is hard to argue with the suggestion that – having established an obligation, educated the market, and secured compliance from 60% of eligible companies – non-compliant firms should be pursued and, if necessary, fined.  Of course, failure to comply with the administrative requirement to publish a statement should be met with a proportionate penalty, and it does not imply that the defaulting business is complicit in illegal activity.  But compelling compliance is important. 

However, some believe that a number of the government’s proposals go too far.  They argue that they would impose disproportionate compliance burdens on responsible businesses while not necessarily furthering the fight against modern slavery.  The BVCA, the UK’s private equity industry association, has pointed out that making it mandatory for firms to report on, for example, the efficacy of their policies to prevent modern slavery will impose an unreasonable burden on some companies.  It could also give rise to liability risk and may require firms (including many relatively small businesses) to incur external costs. 

The private equity industry has responded well to the UK’s Modern Slavery Act.  Many fund managers have gone beyond the strict legal requirements in their own statements and have strong reputational incentives to encourage or require compliance by their portfolio companies.  No doubt they will welcome the UK government’s focus on ensuring that the rest of the business community follows suit.  Guidance and best practices are also helpful, but mandatory reporting requirements should be extended with caution and only after an appropriate cost/benefit analysis.